BALTIMORE — Last week, stocks finished at an all-time high. But guess what? In terms of real money — gold-linked, pre-1971 dollars — stocks have been losing ground since the start of the millennium.
We are looking at one of the most remarkable episodes in financial history. Investors think they are making money… when they’re actually getting poorer.
Donald J. Trump tells the international Deep Staters at Davos that the U.S. economy is “spectacular,” but most of its counties have never recovered from the crisis of ’08-’09.
What a jolly time to be alive… to be conscious… with a few dollars saved up and a sense of humor. And coming up… a financial Demolition Derby on a global scale…
Financial Train Wreck
Yes, we’ve seen plenty of little sh*thole countries go broke. They spend too much. They steal too much. And then, what do they do to cover the corruption and waste? They print money.
But we’ve never seen a country with the world’s reserve currency and a $20 trillion economy do it. So this will be fun to watch.
And on this TV you can’t touch that dial. You can’t turn it off.
Doesn’t matter how smart our Federal Reserve governors are. Doesn’t matter what stable genius is in the White House. Doesn’t matter what any of us think or do.
You don’t even need a “bad guy” or a monetary monster. Milton Friedman is practically a saint in some circles; but it was he who invented the new money in 1971… and he will be largely to blame for the destruction ahead.
Yes, Dear Reader, even good people do bad things… and even smart people make such jackass mistakes as to cause the gods to chuckle, and the dead to laugh out loud.
They’ve seen this before. They know how it turns out.
So let’s look more closely at why it is inevitable, even as they do everything “right”…
Do the Right Thing
The Fed clearly made the right choice when it chose to pump up the repo market with hundreds of billions in new money. Otherwise, the world economy, the stock market… the whole shebang would have gone to Hell.
It will surely do the right thing next week and the week after, too. The feds have $6 trillion of short-term loans to “roll” in the next six months. That’s the cost of overspending – wars, boondoggles, giveaways, waste — by the U.S. government.
Oh… and it’s not going away. No candidate — Democrat or Republican — is proposing to cut U.S. spending. And no president could survive in office if the Deep State connivers completely turned against him.
That’s why they will all do the “right” thing.
And who could blame Obama and then-Fed chief Bernanke for pushing the panic button in ’08? They did the right thing, adding $10 trillion in deficits and $3.6 trillion in Fed quantitative easing (QE).
Bernanke had the “courage to act” and saved the nation from a dreadful recession; he said so himself.
And didn’t Mr. Trump do the right thing when he cut taxes… and increased spending… too? Isn’t that why the Dow is at 29,000… unemployment is below 5%… and he can brag at Davos? He thinks so.
Mr. Obama had allowed for a modest decline in military spending as the wars in the Mideast wound down. Then, not only did the “conservative” Trump increase military spending, he boosted domestic entitlements, too.
Domestic, social spending rose 3.2% annually under Obama. Under Trump, it is going up at a 5.4% annual rate. Overall, spending is increasing more than twice as fast as it did during the Obama years.
And who doesn’t like it? Who doesn’t want more money? Widows? Veterans? Cronies? Lobbyists? The Swamp? Everybody is in favor. At least, at the beginning.
Our old friend Doug Casey had the once-in-a-lifetime opportunity to meet a real central bank legend. It was Gideon Gono, who — as the governor of Zimbabwe’s central bank — had printed trillion-Zimbabwe dollar notes by the gazillion… and destroyed the country’s economy.
But Doug reported that Gono seemed like a nice, intelligent guy. He actually wrote a report to his boss, “Comrade Mugabe” (that’s what Zimbabwe’s head man liked to be called), in which he proposed a gold-backed dollar. And he only resorted to the printing press, he said, because he needed a way to pay the army.
Wasn’t that the right choice? Had he not paid the army, the soldiers might have gone on the rampage… or taken over the government.
And what about Rudolf von Havenstein? It was he who presided over one of the most notorious episodes in hyperinflation history, in Germany in the early 1920s.
Wasn’t he in almost the same situation as America’s current Fed chief, Jerome Powell? And didn’t he do the “right” thing, too? Liaquat Ahamed explains, in Lords of Finance:
Von Havenstein faced a real dilemma. Were he to refuse to print the money necessary to finance the deficit, he risked causing a sharp rise in interest rates as the government scrambled to borrow from every source. The mass unemployment that would ensue, he believed, would bring on a domestic economic & political crisis.
Was von Havenstein stupid? Evil? No more than the rest of us. Perhaps he made the right choice. But the results were disastrous.
Printing new money cheats people who have worked, saved, and trusted the old money. Stefan Zweig wrote that the money-printers had…
Cheated the mothers who had sacrificed their children, cheated the soldiers who came home as beggars, cheated those who had subscribed patriotically to war loans, cheated all who had placed any faith in any promise of the state, cheated those of us who had dreamed of a new and better ordered world and who perceived that the same old gamblers were turning the same old trick in which our existence, our happiness, our time, our fortunes were at stake.
One of those who felt cheated was a young, Austrian house painter named Adolf. He made plans to get even…
• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.